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Gold is Flashing a Warning Signal
The Santa Clause rally lifted equity markets, but Gold advanced in unison, therefore flashing a warning signal that one market is wrong about 2020. The US Dollar is under pressure as well, assisting the advance in this precious metal. Gold is priced in US Dollars and often enjoys an inverse relationship, meaning that a sell-off in the US Dollar results in a rally in Gold. As US equity markets pushed to new all-time highs, investors and traders opted to ignore the red flags flashing around the globe. Gold is shining as a result of what could be a very turbulent 2020.
Gold Retakes $1,500
In thin post-holiday trading, Gold retook the $1,500 level which may be the floor in 2020. With the US Fed in focus for Gold bulls, more upside us expected. The US central bank stated no changes to its monetary policy for 2020, but the weakening economy may lead to a resumption of its interest-rate cut cycle. AxiTrader Chief Asia Market Strategist Stephen Innes added that “Without a dovish Fed pivot, it’s unlikely gold will make explosive gains, but it does appear the market is trying to carve out a new higher trading range.”
He further noted that “Caution needs to be exercised as the bullion markets could be extremely volatile, given the market’s low liquidity profile, especially to the downside as trade news remains positive and equity markets still scaling new heights.” Gold has been advancing in the face of what appears to be positive developments, but traders remain cautious. This suggests that significant issues remain, and they are not priced into financial markets.
US-China Phase-One Trade Deal
The announced phase-one trade deal between the US and China has accomplished good media coverage, but it offers nothing to support economic growth. The deal has helped both sides score political points with their domestic audience, but it remains an insignificant development. It prevented more tariffs and without this deal, the situation may have gotten even worse for the global economy. Traders should get used to the idea that a confrontational scenario is here to stay, as neither side will cave into the point it looks like defeat. A prolonged stalemate may be the best the global economy will get.
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Global Data Points to Weak Economy
US regional reports consistently come in weaker than expected, and US Dollar traders are taking note. The Philadelphia Fed Business Outlook dropped to 0.3 in December, barely avoiding a negative reading. Economists expected a small slowdown to 8.0 from November’s 10.3. The Kansas City Fed Manufacturing Index clocked in at -8 in December where economists anticipated no change from November’s reading of -3. Durable goods orders for November posted an unexpected contraction, and so did shipments.
This was extended with the Richmond Fed Manufacturing Index which was reported at -6 for December. Economists were looking for an improvement to 1 from November’s -1. The global manufacturing sector has entered a recession, US data is mirrored in other export-oriented economies. Germany is leading the slump in the Eurozone, Switzerland has been weaker, and the UK is slowing down. Canada and Australia remain fragile. The downtrend is expected to continue next year.
Singapore industrial production plunged in December, catching economists yet again by surprise. As more recessionary reports trickle in, Gold is expected to extend its advance. Price action is on track to take out the 2019 high of $1,556.74, and it may happen in the first quarter of 2020. This may bring the 2012 high of $1,795.25 in play, and true gold bulls await an attack of the all-time high of $1,920.55. This was set in 2011, as the immediate aftermath of the 2008 financial crisis faded into the background.
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Taking a long view on Gold, a rally into all-time highs is possible. This precious metal is currently faced with its secondary descending resistance level after the long-term bullish trend was confirmed by a breakout above its primary descending resistance level. The next fundamental catalyst is anticipated to push Gold higher, from where it is cleared to move into its horizontal resistance area. The CCI receded from extreme overbought conditions, and the higher high suggest more upside may follow. Open your PaxForex Trading Account today, and join one of the fastest-growing communities in the forex market!
Traders looking for a much greater percentage gain will find it in Silver, which failed to advance as much as its big brother. An uptrend is established and well supported by its primary ascending support level. Similar to Gold, this precious metal is now pressured by its secondary descending resistance level. A breakout is anticipated to quickly rally Silver into its next horizontal resistance level, which remains over 40% below its all-time high of $49.810. The CCI has moved out of the extreme overbought territory and a new push higher is expected. Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month!
As Gold and Silver are positioned for strong gains in 2020, the US Dollar is equally well-positioned for more weakness. The USDZAR is often dismissed due to weakness in the South African economy, but its mining activity may benefit from safe-haven demand and usher in a better-than-expected economic performance. Price action was rejected by its horizontal resistance area, and its primary descending resistance is pressuring this currency pair to the downside. The CCI completed a bearish momentum crossover with more downside anticipated. Follow the PaxForex Daily Forex Technical Analysis and grow your balance trade-by-trade!